The Bank of England (BoE) is widely expected to hold its base interest rate at 3.75 percent during its Monetary Policy Committee (MPC) meeting on July 30, 2026.
This decision comes despite oil prices surging above $100 a barrel amid renewed conflict in the Middle East.
Brent crude briefly exceeded $100 in late July before settling around $96, a sharp rise from earlier July levels near $71.
The spike followed the breakdown of a ceasefire between the US and Iran and attacks disrupting shipping routes.
Economists warn that sustained high oil prices could force the BoE to reconsider its forecasts.
However, the MPC is predicted to vote 7-2 to keep rates steady for the remainder of 2026.
Divergent Views on Rate Path
Sanjay Raja, Chief UK Economist at Deutsche Bank, highlighted risks of prolonged energy supply disruptions.
"We see upside risks to the interest rate outlook in the near term, with much dependent on the duration of the unfolding energy shock," he said.
George Buckley of Nomura noted market signals linking oil prices to rate hikes.
At $90 per barrel, he said markets expect one and a half quarter-point hikes; at $100, two 25 basis point hikes would be needed.
Mohamed El-Erian, professor at the University of Pennsylvania, warned that oil above $90 would put significant upward pressure on headline inflation.
This could heighten concerns over indirect effects, including rising food prices from diesel transportation costs.
Ruth Gregory of Capital Economics suggested that if inflation jumps to 7 percent due to Middle East tensions, rates could rise from 3.75 to 4.75 percent.
Conversely, Harvinder Kalirai of Alpine Macro expects the BoE to "look through the oil shock and political noise" for now.
He stressed that the UK economy lacks strength to absorb higher fuel costs and increased borrowing expenses.
Costas Milas of the University of Liverpool argued for prompt action.
"This is too uncomfortable for the BoE to stay inactive," he said, noting public dissatisfaction with the bank.
He suggested a rate hike as early as September.
David Aikman of the National Institute of Economic and Social Research warned about inflation persistence.
"The longer inflation remains above target, the greater the chance inflation expectations shift and wages respond," he said.
Despite these warnings, the MPC's majority view is to hold rates steady.
UK inflation eased to 2.6 percent in June, and GDP growth was minimal at 0.1 percent in May.
Thomas Pugh of RSM UK emphasized that if oil prices stay near $100 over the summer, a September rate hike would move firmly onto the table.
A peace deal and falling prices could keep rates unchanged until cuts begin in 2027.
Governor Andrew Bailey is expected to address how the Middle East conflict affects inflation forecasts and the Bank's interest rate policy during the MPC meeting.
